A simple test for private information in insurance markets with heterogeneous insurance demand

Li Gan (), Feng Huang and Adalbert Mayer ()

Economics Letters, 2015, vol. 136, issue C, 197-200

Abstract: A positive correlation between insurance coverage and ex post risk indicates private information in insurance markets. However, this test fails if agents have heterogeneous risk attitudes. We propose a finite mixture model that conditions on unobserved types who differ in their risks preferences and detects asymmetric information even if heterogeneous risk attitudes exist. Our method identifies the existence of private information, without using direct evidence of private information.

Keywords: Individual heterogeneity; Private information; Insurance markets (search for similar items in EconPapers)
JEL-codes: D82 G22 I11 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: A Simple Test of Private Information in the Insurance Markets with Heterogeneous Insurance Demand (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:136:y:2015:i:c:p:197-200

DOI: 10.1016/j.econlet.2015.09.039

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